With the notable exception of ExxonMobil, oil majors are leaving the Canadian oil sands sector. They are replaced by Canadian oil companies.

Imperial Oil, majority owned by ExxonMobil, recently declared it would continue its US$2 billion Aspen project in Alberta. In contrast, Shell and ConocoPhillips are selling their oil-sands assets. Other majors may follow. The reasons are manifold:

An increasing number of important institutional investors shareholders shun carbon-intensive oil sands exposure as much as coal.

Moreover, multi-decade oil sands projects are in contrast to a more flexible and more diversified investment approach which is the “strategy du jour” in board rooms these days. Short-term shale projects, diversification into gas, or even offshore wind, meet off-risk demands in a better way.

The main problem, however, for all oil sands operators is logistics. The existing pipeline capacity to consumer areas is exhausted. Rail, barge and even truck transport are used but at a considerable cost and with limited capacity.

When transport bottlenecks pressed most Canadian crude prices to just 13 $/b politics stepped in. Large Producers such as Canadian Natural Resources, Nexen Energy and Cenovus Energy, who lack access to own refineries, demanded from government a temporary cut in production. The push met opposition by Suncor Energy, Imperial Oil and Husky Energy. Their refineries generate enormous wind-fall profits thanks to low input prices. Now, a kind of “Mini Opec” forces Canadian operators to cut their production since the beginning of this year. Spreads have almost normalized.

Canadian oil sands producers are counting on three proposals for new takeaway capacity to defuse transport problems: the 830,000 b/d Keystone XL pipeline, the 590,000 b/d Trans Mountain pipeline expansion to British Columbia, and a 370,000 b/d expansion of Enbridge’s Line 3 into the US Midwest. But there are major legal and political obstables for all three projects.

The last major oil sand project was (Canadian) Suncor Energy´s Fort Hills project in 2013, which is now ramping up to full output. Independent Suncor Energy holds the top position in Canadian oil sands. In fact, it is already a “mini major”. It currently has about 940,000 barrels a day of oil production capacity and a large refining business. Enterprise value is about US$80 billion.

Canadian companies bet on an increase in efficiency, innovation and benign climate policies. Oil sand is still a very young industry. Operating costs at Suncor fell from over 30 US-Dollar per barrel in 2012 down to below 20 US-Dollar in 2017. They expect to get even below 15 US-Dollar per barrel oil in a few years time, thanks to autonomous oil sands trucks and digitalization of operations.

Read more on strategies of large energy companies in the next edition of our Global Energy Briefing (German and English version available)

Japanese industrial conglomerate Hitachi (6501:JP; $30bn market cap) abruptly stops its nuclear power projects in the U.K. They announced to book a loss of $2.8bn (300bn Yen) to write down its British nuclear business.

Hitachi also said they will shift away from the reactor sales business worldwide. After the $6.4bn acquisition of ABB´s power grid division in last December, the risks to its balance sheet apparently were judged too high.

Financial investors welcomed the step. Hitachi shares in Japan jumped by more than 10 percent late last week when first reports were published.

2. The projects

This means the end to the large Wylfa nuclear plant (Wales) which was originally planned by German utilities E.ON and RWE some years ago. It also means the end to the second Hitachi plant planned in Oldbury.

The exit represents a major blow to British energy policies, started by Tony Blair in 2006, which were to rely on new nuclear plants to replace aging units over the next two decades. Wylfa alone was to provide 7 percent of British power. About 7 GW of nuclear capacity are scheduled to shut down in the 2020s.

Late last year Japan´s Toshiba quit the Moorside nuclear project in the UK in a similar move. EDF´s project in Sizewell (a carbon copy of Hinkley) and Bradwell (Chinese design) appear vague, as EDF lacks the financial firepower and as political troubles with China mount. At present, Hinkley Point (EDF and China´s CGN) is the only new nuclear project under construction.

3. British energy policy

The British government was prepared to guarantee high power sales prices (Wylva 75 GBP/MWh, Hinkley 92.5 GBP/MWh, both plus inflation adjustment), but the upfront construction cost risk remained a major hurdle. London now contemplates a switch to “regulated asset base” approaches which could shift the construction cost risk to taxpayers.

London is now in an awkward position of either relying more on Chinese nuclear suppliers, or to burn more gas and coal, or to double its efforts to promote renewable power generation and large energy storage.

4. Nuclear industry: “Inspire the Next”

Hitachi´s exit shifts the nuclear turnkey business even more to Russian and Chinese state-backed suppliers and implies the end of Japanese nuclear projects abroad. Japan´s nuclear companies had amassed a number of projects over the past decade. None of them materialized as cost estimates were rising and investor risks appeared too high.

Japan´s farewell to global nuclear ambitions will not be the last. Other companies will follow Hitachi´s slogan: “Inspire the next”.

Read more on this evolving story and related news in the next edition of our Global Energy Briefing (German and English version available for subscribers)

Bloomberg (BNEF) reported today a first estimate on global investment in clean energy in 2018. It dropped 8 per cent to $332.1bn.

The good news is that falling cost of wind turbines and solar panels somehow blur the impact of this sum.In terms of sectors, only wind and solar attracted more than $10bn :

Wind investment was down 3% to $128.6bn (hereof offshore +14% to $25.7bn)

Solar investment was down 24% to $130.8bn (mainly due to a 53% slump in Chinese investment to $40.4bn)

In geographical terms, the downturn was mainly due to China where investment was down 32% to $100.1 billion. That was still enough to keep the top spot, followed by the U.S. (+12%), Japan (-16%), India (-21%) and Germany (-32% to $10.5bn).

The authors expect another reduction of both costs and overall investment in 2019. This would be bad news for #wind turbine and #PV cell/module makers.

The really disappointing news, however, is the stagnation of clean energy investment for nine years in a row, as the chart shows. Since the year 2010, investment has been more or less stagnating.In stark contrast to media headlines and alarming climate phenomena, clean energy apparently has not become more attractive for the investment community. This is all the more true when we subtract China´s investment share.

In a broader perspective, this casts more doubt on a market-oriented, liberal approach of energy transition, promoted by BNEF (Liebreich) and many other experts.

Read more on this BNEF report and related news in the next edition of our Global Energy Briefing (German and English version available for subscribers)

Oil & Gas Major Royal Dutch Shell and Dutch pension fund PGGM formed a consortium to take over Dutch utility Eneco.

Eneco

Eneco is owned by 53 Dutch municipalities. In a turbulent political process they have decided to sell the company a few months ago. The company value is estimated in the region of €3bn.

Total turnover in 2017 was €3.4bn. Although more known for its renewable investments, Eneco still generates half of its power (10.3 TWh p.a. in 2017) by fossil fuels, mainly gas.

Eneco also has a large trading division focused on gas trading (45.3 TWh) and power trading (21.5 TWh).

Shell

The Dutch/British gas and oil giant recently declared to invest $1-2bn per year in its New Energies division, established in 2016. This corresponds to 4-8% of its total investment of around $25bn.

Its European peers (in contrast to its US peers) pursue similar strategies: BP, Total, ENI and Equinor have pledged around $0.5 bn per year for renewables. ENI plans to increase renewable investments from 0.5 to 1.2bn over the next years. And Equinor even announced a 15-20 per cent share of renewables in its investment portfolio by 2030.

Eneco and Shell have partnered in several wind projects over the past years. The Dutch would fit into Shell´s strategy to invest in the power supply chain, similar to its First Utility akquisition in the UK.

This would, if on a much smaller scale, mirror its oil and supply chain which starts at the oil field and ends at the gas station or at the industrial client.

Direct access to power plants, networks or power markets would create:

(1) an outlet for its large gas upstream division and (2) its increasing portfolio of wind and solar projects. This, in turn, may develop into a

Shell is not a newcomer to the power sector. They are the second-largest power trader in the US and are heavily investing in downstream gas/power activities in Asia.

Shell´s and PGGM´s planned bid may not be the last word. Counter offers by other European oil or gas companies are quite possible. Total or Engie would be candidates, also given Eneco´s activities in France (ex ENI assets).

Read more on oil company strategies in the fossil and renewable world in the next edition of our Global Energy Briefing (German and English version available for subscribers)

The 6 GW capacity would make it the largest wind base in the world, at an estimated cost of RMB 42.5 bn ($6.2bn). So far, MidAmerican´s 2 GW Wind XI project held the top spot.

SPIC will develop the project on a zero-subsidy basis,i.e. in competition to coal power plants in the province which receive a price benchmark of 283 Yuan/MWh (41.3 $/MWh). This will be the standard approach for all large wind and solar farms in China from 2020 on.

State-owned conglomerate SPIC (State Power Investment Corp.) was only recently established through the merger of large power producer CPIC and nuclear giant SNPTC.

Read more on company strategies in the fossil and renewable industry in the next edition of our Global Energy Briefing (German and English version available)

1. About ten years ago the Chinese PV industry accelerated global expansion and strengthened the vertical value chain within China (module, cell, wafer, ingot, poly). But they still faced strong competition from high-quality pure cell producers in Taiwan, Japan and Germany and from thin-film specialists such as FirstSolar (U.S.).

2. Soon after, the Japanese and German producers were outcompeted via costs. Over time, even Taiwanese cell producers such as Hanwha Q-CELLS were unable to keep pace with the extremely fast expansion plans of their (mainland) Chinese competitors.

3. In the next step, even Chinese pure-play cell producers such as Tongwei and Aiko set up a blistering pace of investment with multipes of 5 GW factories, disregarding any risk of oversupply and financial losses.

Ranking 2018

Today, the chart shows that 8 out of the Top 10 PV cell producers are Chinese companies, joined by Hanwha Q-CELLS (Korea) and First Solar (U.S.).

Four of the Chinese Top10 players (JA Solar, Trina Solar, JinkoSolar, Canadian Solar) are global module suppliers with well-known brands, covering almost the entire product range from p-multi to mono PERC cells. They have large in-house cell production capacities and buy additional cells from the likes of Tongwei or Aiko.

Hanwha Q-CELLS also features a well-known brand and Korean-style conglomerate strategies.

LONGi Solar follows a slightly different path and features a highly integrated value chain from ingot to module.

Shunfeng, on the other hand, is a large cell/module producer mainly confined to the Chinese market. Investment limitations have so far delayed a shift from older product types to more efficient products.

Tongwei and Aiko pursue a strategy of extremely rapid expansion of cell capacities with 20 GW each. This will put pressure on competitors worldwide and may prevent cell prices to rise for some time to come.

Tempe/Arizona-based First Solar (U.S.)is the only important thin-film solar cell producer worldwide.

Technology

The industry is at several technological crossroads: the switch from multi to mono crystalline products is already in full swing. The step from p-type fo more efficient n-type (and PERC) products is only starting and mainly supported by Chinese policies (Top Runner). If n-type production is mastered at reasonable cost and at gigawatt level, a large investment wave may start. But the timing is still unclear.

However, Colville hands his personal technology award not to Chinese c-Si cell makers, which follow a low-risk technological path mainly developed by Western competitors some years ago (PERC, AI-BSF), but to U.S. thin-film specialist First Solar. The company last year managed the switch to Series 6 product lines. It now occupies a unique position both in terms of products and manufacturing and may improve its Top10 ranking in 2019.

But the progress of the (from a Western point of view) “last man standing” does not alter the overall picture: The fight is over – Upstream PV from silicon to modules has become a Chinese industry.

Read more on company strategies in the PV and wind industry in the next edition of our Global Energy Briefing (German/English version available)

What is the state of the Chinese economy? Growth estimates for 2018 differ widely between the official 6.x percent, down to less than 2 per cent.

A strong indicator of weakness is the official car sales number for 2018. It declined, for the first time since 1990, by almost 6 per cent to 22.7 million units. December numbers were even 19 percent below last year, as Bloomberg (CAAM) reported.

The market of combustion engine cars (i.e. gasoline or diesel driven) suffered even more because the sales numbers of electric cars rose, thanks to generous government and municipal support. The fleet of new battery-electric cars (BEV) and plug-in hybrids grew strongly to over 1 million units in 2018 and may reach 1.6 million units in 2019 as strict quotas come into force.

But problems are not confined to the Chinese market. The headline-grabbing diesel car scandals may mask a global sales crisis of gasoline/diesel cars, as a recent study by RBC Capital suggests (see image above). Main reasons are urban smog policies, quickly rising electric car sales and new mobility services such as car-sharing or Uber-like products.

As for China, early estimates indicate a stagnation or another decline of car sales in 2019, unless car ownership restrictions in major cities will be relaxed.

As for global markets, RBC Capital expects a decline by 0.6 million to 94.6 million car sales (all drive types) in 2018 and another drop by 0.4 million in 2019. That is a clear break from the trend in the years before. Sales number for 2013 amounted to just 84.7, followed by steady growth until 2017.

As electric car sales (BEV, PHEV) are expected to grow by at least 0.7 million in 2018 und more than 1.0 million in 2019 there is little hope that combustion engine car sales will resume the growth path any time soon. Only in hindsight we will know if 2018 was the “peak combustion engine car” year.

Danish wind turbine giant Vestas reached a total installed capacity of 100 GW in late December 2018, according to company press releases. This equals a share of 16.7 percent of the world´s total installations of c. 600 GW wind turbines. Since 1979 the company has installed 66,000 turbines in 80 countries across the globe.

Order inflow looks promising with a record 12.9 GW in 2018 after 11.2 GW in 2017. The company reinstated its original 2018 cash flow target of €400 million, revoking a profit warning in November. Revenue expectations have remained unchanged at €10-10.5bn. The annual report is due on 7 Feb. 2019.

Looking forward, Vestas underlined that they will continue the strategic transformation from a pure wind turbine player to a provider of sustainable energy solutions. This would comprise hybrid solutions, storage, grid integration as well as digital and financial services. On the production and installation side, the focus will be on scalability and a modular approach to design, products, installation and integrated solutions.

The offer is 44 percent above last week´s closing price but still way below the share price of last summer when crude oil was above $70 per barrel. QEP has 51.000 acres (c. 200 km2) in the Permian Basin, located close to large operators like ExxonMobil or Encana.

As large oil majors pour into the shale sector, small and mid-sized oil drillers owning attractive acreage have become the target of financial firms and large oil companies. For the likes of ExxonMobil or BP, shale oil is an interesting option for diversification and de-risking of capital investment thanks to short project times and predictable cash flow. For financial firms, some mid-sized drillers appear to be undervalued when oil prices fall and financing conditions for the oil firms deteriorate.